# Calculation of interest on withdrawal

Calculation of interest on withdrawal:- How is interest on withdrawal calculated and at what rate interest is paid on the partner’s loan? This is what you will know in today’s post.

## How is interest calculated on withdrawal

If a partner withdraws a certain amount at the beginning of every month and the amount of withdrawal is the same, interest will be calculated on the total amount of withdrawal for 6 rounds 1/2 months.

Formula-

Interest on Withdrawal = Total Amount of Withdrawal × Rate of Interest/100×6.5/12

2. If a partner withdraws a certain amount at the end of each month, interest will be calculated on the total amount of withdrawal for 5 rounds 1/2 months.

Formula

– Interest on Withdrawals = Total Amount of Withdrawals × Rate of Interest/100×5.5/12

3. If a partner withdraws a certain amount in the middle of each month, interest will be calculated on the total amount of withdrawal for 6 months.

Formula-

Interest on Withdrawal = Total Amount of Withdrawal × Rate of Interest/100×6/12

4. If a partner draws an unequal amount irregularly every month, the interest will be calculated by the production method.

Note:- Pa then pa = Per Annum (per year)

5. If a partner withdraws a lump sum amount in a year and the date of withdrawal is not mentioned then interest will be calculated on the amount of withdrawal for 6 months.

6. If a partner withdraws a certain amount at the beginning of every quarter (3 months), interest will be calculated on the entire amount of withdrawal for 7 round 1/2 months.

Formula

– Interest on Withdrawal = Total Amount of Withdrawal × Rate of Interest/100×7.5/12

Average Period = Time left after fist drawing + Last drawing /2

7. If a partner withdraws a certain amount at the end of each quarter, the interest will be calculated on the entire amount of withdrawal for 4 round 1/2 months.

Formula

– Interest on Withdrawals = Total Amount of Withdrawals × Rate of Interest/100×4.2/12

8. If a partner withdraws certain amount in the middle of every quarter, interest will be calculated on the entire amount of withdrawal for 6 months.

Formula-

Interest on Withdrawal = Total Amount of Withdrawal × Rate of Interest/100×6/12

## What is the interest on withdrawals for the firm?

Firm i.e. partnership business in which two or more partners are involved and all the partners are investing some or the other of their money in the business. Sometimes it happens that one of the partners needs money for some personal work in that case that partner withdraws money from the business for his personal use. These are withdrawals for the partner. Now the question must be coming in your mind that then the rest of the partners should also withdraw the same amount? What will he do if the other partner does not need the money? So let me tell you-

A. Now the question must be coming to your mind that then the rest of the partners should also withdraw the same amount.

Answer- It is definitely not. If a partner needs money, he can withdraw more than that.

B. What will he do if the other partner does not need the

money Ans- There is no coercion to withdraw that money.

Example- 1

X, Y, and Z are three partners, together they formed a partnership firm. Y withdraws money from the business for his personal use. From the time of incorporation of the partnership firm or partnership deed, it is mentioned that if a partner withdraws money for his personal use then interest will be calculated on his withdrawal. In the above post it is completely explained how the interest amount will be calculated on the withdrawal if the partner withdraws money at the beginning, end, middle or only once every month. The amount of interest received by the partner in this whole process is the interest on withdrawal for the firm.

### Why is interest calculated on withdrawal

When partners draw disproportionately, it results in separate profits for the partners. Interest on withdrawals is calculated to remove disproportionate gains.

### At what rate is interest paid on the partner’s loan?

In the absence of a partnership agreement, interest on the partner’s debt is paid at the rate of 6 per cent per annum.